Post navigation

When’s a Ponzi Scheme Illegal?

Ron Paul Revolution

I was overcome with mixed emotions when I heard Bernard Madoff, former Nasdaq Stock Market chairman and founder of Bernard L. Madoff Investment Securities LLC, was arrested and charged with securities fraud in what federal prosecutors called a Ponzi scheme that could involve losses of more than $50 billion.

On the one hand, I was amused at another distraction heaped on the American public to keep them from understanding the real problem. It would seem Mr. Madoff is Wall Street’s sacrificial lamb offered to divert attention from the banksters looting the U.S. Treasury. He is the “bad” guy in a $50 billion Ponzi scheme while the “good” guys loot the Treasury in a multi-Trillion dollar Ponzi scheme.

On the other hand, I was disgusted at the hypocricy of the Securities and Exchange Commission, New York U.S. Attorney, and the Federal Bureau of Investigation for their complicity in covering up one of the largest frauds in U.S. history. The “real” criminals get away with looting the U.S. Treasury and transferring trillions of dollars to their crony buddies while an individual like Madoff is thrown under the bus to take the fall. Where are the indictments for Ben Bernanke and Henry Paulson?

Madoff wasn’t only describing his business when he said he was “finished,” that he had “absolutely nothing,” that “it’s all just one big lie,” and that it was “basically, a giant Ponzi scheme”.

Madoff was describing the whole fraudulent financial system set up by the Federal Reserve to enrich international banksters. I think he was recognizing that our economy is “finished,” that our dollar is worth “absolutely nothing,” that fractional reserve banking “is all just one big lie,” and yes… because of the collapse of the Housing Credit bubble created by the Federal Reserve, combined with bad bets in the derivitives markets, many commercial banks and other financial entities found themselves unable to meet their financial obligations in a gigantic Ponzi/Pyramid Scheme.

Post navigation

Comments

When’s a Ponzi Scheme Illegal? — 3 Comments

Capitalism is founded upon competition. In a free market, local retailers vie for the dollars in consumers’ pockets. Promising young managers try to outperform one another to earn a coveted promotion. Salespersons battle against one another to land the account of a major customer.

In the competitive arena, leaders play to win. By nature, they are motivated to finish first. Nothing less rests well with them. As competitors, leaders invest an abundance of energy to get ahead or gain an edge. That’s not to say leaders are cutthroats or cheaters, most compete fairly, but nearly every leader has a burning desire to win.

Peter Schiff’s Economic Commentary from Wednesday, December 17, takes aim at the giant Ponzi scheme that is Social Security and our nation’s monetary policy.

A chain letter is no more viable when run by governments than when run by private citizens. However, government orchestrated pyramids have the advantage of required participation. As a result, they can maintain the illusion of viability for several generations. But the longer such schemes operate the larger will be the losses when they ultimately collapse.

The Social Security Administration runs its “trust funds” with precisely the same methods used by Madoff and Ponzi. As money is collected by from current workers, the funds are then dispersed to those already receiving benefits. None of the funds collected are actually invested, so no investment returns are ever generated. Those currently paying into the system are expected to receive their returns based on the “contribution” made by future workers. This is the classic definition of a Ponzi scheme. The only difference is that Ponzi didn’t own a printing press.

The United States Government runs its own balance sheet based on the Ponzi principal as well. Our national debt always grows and never shrinks. As existing debt matures, proceeds are repaid by issuing new debt. Interest payments on existing debt are also made by selling new debt to investors. The whole scheme depends on an ever growing supply of new lenders, or the willingness of existing lenders, to continue to roll over maturing notes. Of course, as was the case with Madoff, if enough of our creditors want their money back, the music stops playing.

The main difference is that while Madoff took elaborate steps to conceal his scheme, the U.S. government operates in broad daylight. It truly is amazing how faith in government is so pervasive that many can believe that politicians will succeed where private individuals fail, and that governments are somehow immune to the economic laws that govern the rest of society. Like those unfortunate to have been duped by Madoff and Ponzi, the world is in for a rude awakening.